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Transcript of Project Appraisal of Hotel
“Project Preparation and Appraisal of Hotel cum Resort”
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BRCM COLLEGE OF BUSINESS ADMINISTRATION
Chapter 1
Introduction of Topic
“Project Preparation and Appraisal of Hotel cum Resort”
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1.1 ENTREPRENEURSHIP
Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who
undertakes innovations, finance and business acumen in an effort to transform innovations
into economic goods". This may result in new organizations or may be part of revitalizing
mature organizations in response to a perceived opportunity. The most obvious form of
entrepreneurship is that of starting new businesses (referred as Startup Company);
however, in recent years, the term has been extended to include social and political forms
of entrepreneurial activity. When entrepreneurship is describing activities within a firm or
large organization it is referred to as intra-preneurship and may include corporate
venturing, when large entities spin-off organizations.
Entrepreneurial activities are substantially different depending on the type of organization
and creativity involved. Entrepreneurship ranges in scale from solo projects (even
involving the entrepreneur only part-time) to major undertakings creating many job
opportunities. Many "high value" entrepreneurial ventures seek venture capital or angel
funding (seed money) in order to raise capital to build the business. Angel investors
generally seek annualized returns of 20-30% and more, as well as extensive involvement in
the business.[4]
Many kinds of organizations now exist to support would-be entrepreneurs
including specialized government agencies, business incubators, science parks, and some
NGOs. In more recent times, the term entrepreneurship has been extended to include
elements not related necessarily to business formation activity such as conceptualizations
of entrepreneurship as a specific mindset (see also entrepreneurial mindset) resulting in
entrepreneurial initiatives e.g. in the form of social entrepreneurship, political
entrepreneurship, or knowledge entrepreneurship have emerged.
Brown and Upton had the opinion that Entrepreneurship can be known as the method of
gaining, pulling simultaneously all the resources, and installing them in the quest of
apparent chances in the coming future for lengthy gains.
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1.2 IMPORTANCE OF ENTREPRENEURSHIP
1) Provides employment to huge mass of people: -
People often hold a view that all those who do not get employed anywhere jump into
entrepreneurship, a real contrast to this is that 76% of establishments of new business in
the year 2003 were due to an aspiration to chase openings. This emphasizes the fact that
entrepreneurship is not at all an encumbrance to an economy. What's more is that
approximately 34 million of fresh employment opportunities were created by entrepreneurs
from the period of 1980. This data makes it clear that entrepreneurship heads nation
towards better opportunities, which is a significant input to an economy.
2) Contributed towards research and development system: -
Almost 2/3% of all innovations are due to the entrepreneurs. Without the boom of
inventions the world would have been a much dry place to live in. Inventions provide an
easier way of getting things done through better and standardized technology.
3) Creates wealth for nation and for individuals as well:-
All individuals who search business opportunities usually create wealth by entering into
entrepreneurship. The wealth created by the same play a considerable role in the
development of nation. The business as well as the entrepreneur contributes in some or
other way to the economy, may be in the form of products or services or boosting the GDP
rates or tax contributions. Their ideas, thoughts, and inventions are also a great help to the
nation.
4) Sky-scraping heights of apparent prospects: -
The individual gets maximum scope for growth and opportunity if he enters into
entrepreneurship. He not only earns, the right term would be he learns while he earns. This
is a real motivating factor for any entrepreneur as the knowledge and skills he develops
while owning his enterprise are his assets for life time which usually, lacks when a person
is under employment. The individual goes through a grooming process when he becomes
an entrepreneur. In this way it not only benefits him but also the economy as a whole.
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5) It is a challenging opportunity for the people: -
Although entrepreneurship is a challenging task but in most of the cases the rewards it
gives are much more than what one anticipates. It does not only reward an entrepreneur at
financial levels but also on individual level. It provides self-satisfaction to the
entrepreneur.
6) Entrepreneurship provides self-sufficiency: -
The entrepreneur not only become self-sufficient but also provides great standards of living
to its employees. It provides opportunity to a number of people working in the
organization. The basic factors which become a cause of happiness may be liberty,
monetary rewards, and the feeling of contentment that one gets after doing the job.
Therefore the contribution of entrepreneurs makes the economy an improved place to live
in.
1.3 WHAT IS PROJECT MANAGEMENT?
Project management is the discipline of planning, organizing, securing, and managing
resources to achieve specific goals. A project is a temporary endeavor with a defined
beginning and end (usually time-constrained, and often constrained by funding or
deliverables), undertaken to meet unique goals and objectives, typically to bring about
beneficial change or added value. The temporary nature of projects stands in contrast with
business as usual (or operations), which are repetitive, permanent, or semi-permanent
functional activities to produce products or services. In practice, the management of these
two systems is often quite different, and as such requires the development of distinct
technical skills and management strategies.
The primary challenge of project management is to achieve all of the project goals and
objectives while honoring the preconceived constraints. Typical constraints are scope,
time, and budget. The secondary—and more ambitious—challenge is to optimize the
allocation and integrate the inputs necessary to meet pre-defined objectives.
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1.4 WHY PROJECT MANAGEMENT?
Excellent product quality
Consumers generally look for low cost and high quality, while purchasing a product.
Maintaining a high standard of excellence in developing quality products earns the
company goodwill amongst its customers. How can a project management team help in
improving the quality of a product? The project management plans the allocated budget,
resources and testing methods that keep the pace of production high, both qualitatively and
quantitatively.
Adequate communication
Improper communication among employees can lead to misunderstandings and negatively
impact the performance of the firm. A project manager can be a bridge among the
diversified branches of project undertaking. And why only employees? Stakeholders also
form a part of the company. They prefer investing in those companies that deliver projects
on time and keep them informed about updates and progress of the projects.
Reducing risks
The probability of getting hit by an unwanted or unexpected event has increased manifold
in today's competitive business environment. Why is project management so important?
The project management team can identify the potential risks, take their time to rectify
them and help the company save valuable resources. In case of worst crisis, the project
management team can opt for change management method to attain the desired goals.
Strategic objectives and goals
Strategic goals are the blueprint of the task undertaken by a company. For instance, a
software company aims to prepare software and related programming codes, whereas an
infrastructure company has a target of constructing dams, bridges and other construction
works. A project management team helps the company in achieving the strategic goals, as
it streamlines the task of a company in taking many important decisions.
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1.5 WHY PROJECT PREPARATION?
Systematic and effective Project Preparation is important for a range of reasons outlined
below:
Project risks are managed and controlled.
Scarce implementation resources (e.g. capital funding) are optimally utilized and are
only allocated to viable projects.
Projects are well conceptualized and planned.
Development is appropriately tailored to local needs and is integrated in nature.
Projects are supported by the key stakeholders (including the community, municipality,
funders and implementation partners).
Government and other funders can predict and therefore manage their cash flows by
enhancing the predictability of project outcomes and timeframes for implementation.
1.6 WHY PROJECT APPRAISAL?
Investment appraisal is a decision-making technique, which considers the cost and benefit
of an investment in fixed asset or a project involving fixed asset over a period of time
(often more than one financial year)
When an organization is considering a capital investment, such as investment in non-
current asset (e.g. investment in building, land, vehicles etc.), the huge amount of capital
required and often the length of time that the investment may require and the long term that
the asset is required for means that management need to consider the whole process of
project appraisal carefully and professionally to minimize the risk of the project not being
viable.
.
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1.7 INTRODUCTION OF PROJECT FINANCE
Project finance is the long term financing of infrastructure and industrial projects based
upon the projected cash flows of the project rather than the balance sheets of the project
sponsors. Usually, a project financing structure involves a number of equity investors,
known as sponsors, as well as a syndicate of banks or other lending institutions that
provide loans to the operation. The loans are most commonly non-recourse loans, which
are secured by the project assets and paid entirely from project cash flow, rather than from
the general assets or creditworthiness of the project sponsors, a decision in part supported
by financial modeling. The financing is typically secured by all of the project assets,
including the revenue-producing contracts. Project lenders are given a lien on all of these
assets, and are able to assume control of a project if the project company has difficulties
complying with the loan terms.
Generally, a special purpose entity is created for each project, thereby shielding other
assets owned by a project sponsor from the detrimental effects of a project failure. As a
special purpose entity, the project company has no assets other than the project. Capital
contribution commitments by the owners of the project company are sometimes necessary
to ensure that the project is financially sound, or to assure the lenders of the sponsors'
commitment. Project finance is often more complicated than alternative financing methods.
Traditionally, project financing has been most commonly used in the extractive (mining),
transportation, telecommunications and energy industries. More recently, particularly in
Europe, project financing principles have been applied to other types of public
infrastructure under public–private partnerships (PPP) or, in the UK, Private Finance
Initiative (PFI) transactions (e.g., school facilities) as well as sports and entertainment
venues.
Risk identification and allocation is a key component of project finance. A project may be
subject to a number of technical, environmental, economic and political risks, particularly
in developing countries and emerging markets. Financial institutions and project sponsors
may conclude that the risks inherent in project development and operation are unacceptable
(financeable). To cope with these risks, project sponsors in these industries (such as power
plants or railway lines) are generally completed by a number of specialist companies
operating in a contractual network with each other that allocates risk in a way that allows
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financing to take place. "Several long-term contracts such as construction, supply, off-take
and concession agreements, along with a variety of joint-ownership structures, are used to
align incentives and deter opportunistic behavior by any party involved in the project." The
various patterns of implementation are sometimes referred to as "project delivery
methods." The financing of these projects must also be distributed among multiple parties,
so as to distribute the risk associated with the project while simultaneously ensuring profits
for each party involved.
A riskier or more expensive project may require limited recourse financing secured by a
surety from sponsors. A complex project finance structure may incorporate corporate
finance, securitization, options (derivatives), insurance provisions or other types of
collateral enhancement to mitigate unallocated risk.
Project finance shares many characteristics with maritime finance and aircraft finance;
however, the latter two are more specialized fields within the area of asset finance.
1.8 HISTORY OF PROJECT FINANCING
Limited recourse lending was used to finance maritime voyages in ancient Greece and
Rome. Its use in infrastructure projects dates to the development of the Panama Canal, and
was widespread in the US oil and gas industry during the early 20th century. However,
project finance for high-risk infrastructure schemes originated with the development of the
North Sea oil fields in the 1970s and 1980s. For such investments, newly created Special
Purpose Corporations (SPCs) were created for each project, with multiple owners and
complex schemes distributing insurance, loans, management, and project operations. Such
projects were previously accomplished through utility or government bond issuances, or
other traditional corporate finance structures.
Project financing in the developing world peaked around the time of the Asian financial
crisis, but the subsequent downturn in industrializing countries was offset by growth in the
OECD countries, causing worldwide project financing to peak around 2000. The need for
project financing remains high throughout the world as more countries require increasing
supplies of public utilities and infrastructure. In recent years, project finance schemes have
become increasingly common in the Middle East, some incorporating Islamic finance.
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The new project finance structures emerged primarily in response to the opportunity
presented by long term power purchase contracts available from utilities and government
entities. These long term revenue streams were required by rules implementing PURPA,
the Public Utilities Regulatory Policies Act of 1978. Originally envisioned as an energy
initiative designed to encourage domestic renewable resources and conservation, the Act
and the industry it created lead to further deregulation of electric generation and,
significantly, international privatization following amendments to the Public Utilities
Holding Company Act in 1994. The structure has evolved and forms the basis for energy
and other projects throughout the world.
1.9 PARTIES TO A PROJECT FINANCING
There are several parties in a project financing depending on the type and the scale of a
project. The most usual parties to a project financing are;
1. Project company
2. Sponsor
3. Borrower
4. Financial Adviser
5. Technical Adviser
6. Lawyer
7. Debt financiers
8. Equity Investors
9. Regulatory agencies
10. Multilateral Agencies
11. Host government / grantor
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1.10 THE PROJECT FINANCING PROCESS
Eligible Sectors, The Banks can underwrite eligible projects in all sectors and cross-
cutting themes identified in the Needs Assessment (except for efforts to locate and
disarm unexploded mines).ITF financed operations cover economic management, public
sector management, social safety nets, education, health, water supply and sanitation,
urban reconstruction, rural water and irrigation infrastructure, telecommunications, finance
and private sector development.
The trust fund, which gives particular emphasis to areas where the Bank has a comparative
advantage, will not pay for humanitarian relief missions, peace-keepers,
or other security, military, or political interventions.
Eligible expenditures that can be financed for the above from ITF are:
Investment and capital expenditures, including prefeasibility studies and incremental
recurrent costs.
Technical assistance and training.
Eligible recipients of grants from the Trust Fund must meet the Bank's criteria,
included those that apply to financial viability. Recipient entities responsible for
implementing activities financed from the ITF can be inside or outside Iraq, and include:
Iraqi ministries, governorates and municipalities, private entities, NGOs, UN agencies, or
international financial institutions.
The ITF emphasizes Iraqi ownership and building Iraqi institutional capacity. Under the
ITF, potential recipients, in consultation with World Bank staff, submit project proposals
for approval to the Iraqi Strategic Review Board (ISRB), which determines whether
proposals are consistent with priority needs. Following ISRB approval, the World Bank
proceeds to appraise the project.
For satisfactorily appraised operations, the Bank, as the ITF Administrator, and the
recipient negotiate and sign a Grant Agreement which spells out the terms and conditions
under which funds will be made available to the recipient entity.
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The Grant Agreement governs the actual use and disbursement of funds. It specifies
measurable indicators to monitor implementation progress. It also contains detailed
financial management, procurement, monitoring, and other fiduciary arrangements to
ensure that funds are used for eligible expenditures.
1.11 IMPORTANCE OF PROJECT FINANCING
Whether expanding manufacturing facilities, implementing new processing capabilities,
or leveraging existing assets in new markets, innovative financing is often at the core of long-term
projects to transform a company‘s operations. Akin to the underlying corporate
transformation, the challenge with innovative financial structures such as project finance is
that the investment is made upfront while the anticipated benefits of the initiative are
realized years later. There has been a rise in number of companies that need innovative
financing to satisfy their capital needs, in a significant number of instances they have
viable goals but find that traditional lenders are unable to understand their initiatives. And
so the need merged for project finance.
Project financing is a specialized form of financing that may offer some cost advantages
when very large amounts of capital are involved it can be tricky to structure, and is usually
limited to projects where a good cash flow is anticipated
1.12 REASONS FOR FINANCE Project finance can be defined as: financing of an industrial (or infrastructure) project with
myriad capital needs, usually based on non-recourse or limited recourse structures, where
project debt and equity (and potentially leases) used to finance the project are paid back
from the cash flow generated by the project, with the project's assets, rights and interests
held as collateral. Whether expanding manufacturing facilities, start new business,
technology up gradation, expansion implementing new processing capabilities, or leveraging
existing assets in new markets, innovative financing is often at the core of long-term projects to
transform a company‘s operation.
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1.13 TERM LOAN PROCEDURE
The procedure associated with term loan for starting an event firm involves the following
principal step:
1) Submission of Loan Application:-
The borrower may submit the application to any of the three lending institutions. viz IDBI,
ICICI and IFCI. The borrower is required to fill out a common application form which
seeks comprehensive information about the project. Specifically, the common application
form covers the following aspect:
Promoter background
Promoters of the industrial concern
Particulars of the project (capacity, process, technical arrangement, management
location, land and building, plant and machinery, raw material, effluent, labor,
housing, and schedule of implementation.
Cost of project
Means of finance
Marketing and selling arrangement
Profitability and cash flow
Economic consideration
Government consents
2) Initial Processing Loan Application:-
When the application is received, and officer of the recipient institution reviews to
ascertain whether it is complete for processing. If it incomplete the borrower is asked to
provide the required additional information. When the application is considered complete
the recipient institute prepares a ‗flash report‘ which is essentially summarized of the loan
application, to be evaluated at the Senior Executive Meeting (SEM). Once the SEM, on the
basis of its evaluation of the ‗flash report‘, decides that the project justify a detailed
appraisal, it nominate the lead financial institution. The factor taken into account for
designating the lead financial institution are : location of the project, prior experience of
institution in handling similar project, presentation of institutions in the state and promoter
group, and exiting workload of the institution.
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Fir the convenience of borrower, financial institution operate scheme of participation for
rupee term loans and underwriting assistance. Under this scheme, the borrowers interact
with only the lead financial institution which administers the entire loan and underwriting
facility. The lead institutions exercise the right of other participating intuition as their
constituent authority.
3) Appraisal of the Proposed Project:-
The detailed appraisal of the project is done by the lead institutions. The appraisal covers
the marketing, technical, financial, managerial and economic aspects, the appraisal
memorandum is normally prepared within two month after site inspection and placed
before the Senior Executive Meeting /Inter-Institutional Meeting (SEM/IIM) for a decision
about approval of the project and determining the sharing arrangement among the
institutions. Once a favorable decision is taken at the SEM/IIM forum and the sharing
arrangement worked out, the case is referred to the Board of the lead financial institution.
4) Issue of the Letter of Sanction:-
After the Board of the lead financial institution approves the proposal, a financial letter of
sanction is issued to the borrower. This communicate to the borrower the assistance
sanctioned by the lead institution and the assistance sanction /to be sanctioned by other
participant in the consortium arrangement. Each of the participating institute would , after
approval by its share of assistance to the lead financial institution under advice its share of
assistance. The same will be shared on a pro data basis amongst the lead and other
participating institution.
5) Acceptance of the Term and Condition by the Borrowing Unit:-
On receiving the letter of sanction from the lead financial institution, the borrowing unit
conveys its board meeting at which term and condition associated with the letter of
sanction is accepted and an appropriate resolution is passed to that effect. The acceptance
of the term and conditions has to be conveyed to the lead institution within thirty days.
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6) Execution of Loan Agreement:-
The lead financial institution, after receiving the letter of acceptance from the borrower,
sends the draft the agreement to the borrower to be executed by authorized person and
properly stamped as per the Indian Stamp act 1899. The agreement, properly executed and
stamped, along with other documents as per required by the lead financial institution must
be returned do it. Once the lead financial institution also signs the agreement, it become
effective.
7) Disbursement of Loan:-
Periodically, the borrower is required to submit information on the physical progress of the
project, financial status of the project, arrangement made for financing the project,
contribution made by the promoters, projected fund flow statement, compliance with
various statutory requirement, and fulfillment of pre-disbursement, condition. Based on the
information provided by the borrower, the lead financial institution will determine the
amount of term loan to be disbursed from time to time. Before entire term loan is disbursed
borrower must fully comply with all the term and condition of the loan agreement.
8) Creation of Security:-
The term loans (both rupee and foreign currency) and the deferred payment guarantee
assistance provided by the All-India financial institution are secured through the first
mortgage, by way of deposit of title deeds of immovable properties and hypothecation of
movable properties. As the creation of mortgage, particularly in the case of land, trend to
be a time consuming process, the institution permit interim disbursement against alternate
security (in the form of guarantees by the promoter). The mortgage, however, has to be
created within a year from the date of the first disbursement. Otherwise the borrower has to
pay an additional charge of 1 percent interest.
9) Monitoring:-
Monitoring of the project is done at the implementation stage as well as operational stage.
During the implementation stage, the project is monitored through: (i) regular report,
furnished by the promoters, which provide information about placement of orders,
construction of building procurement of plant, installation of plant and machinery, trial
production, etc., (ii) periodic site visits, (iii) discussion with promoters, bankers, suppliers,
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creditors and other connected with project, (iv) progress report submitted by the nominee
director, and (v) audited account of the company.
During the operation stage, the project is monitored with the help of (i) quarterly progress
report on the project, (ii) site inspection, (iii) reports of nominee director, and (iv)
comparison of performance with promise.
The most important aspect of monitoring of course is the recovery of dues represented by
interest and principal amount.
The financial institution has been made following observation during the implementation
stage
Marketing Appraisal
Technical Appraisal
Financial Appraisal
Economic Appraisal
Managerial Appraisal
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Chapter 2
Industry Profile
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2.1 HOSPITALITY INDUSTRY – AN OVERVIEW
Hospitality is all about offering warmth to someone who looks for help at a strange or
unfriendly place. It refers to the process of receiving and entertaining a guest with
goodwill. Hospitality in the commercial context refers to the activity of hotels, restaurants,
catering, inn, resorts or clubs who make a vocation of treating tourists.
Helped With unique efforts by government and all other stakeholders, including hotel
owners, resort managers, tour and travel operators and employees who work in the sector,
Indian hospitality industry has gained a level of acceptance world over. It has yet to go
miles for recognition as a world leader of hospitality. Many take Indian hospitality service
not for its quality of service but India being a cheap destination for leisure tourism.
With unlimited tourism and untapped business prospects, in the coming years Indian
hospitality is seeing green pastures of growth. Availability of qualified human resources
and untapped geographical resources give great prospects to the hospitality industry. The
number of tourists coming to India is growing year after year. Likewise, internal tourism is
another area with great potentials.
The hospitality industry is a 3.5 trillion dollar service sector within the global economy. It
is an umbrella term for a broad variety of service industries including, but not limited to,
hotels, food service, casinos, and tourism. The hospitality industry is very diverse and
global. The industry is cyclical; dictated by the fluctuations that occur with an economy
every year. Today hospitality sector is one of the fastest growing sectors in India. It is
expected to grow at the rate of 8% between 2007 and 2016. Many international hotels
including Sheraton, Hyatt, Radisson, Meridien, Four Seasons Regent, and Marriott
International are already established in the Indian markets and are still expanding.
Nowadays the travel and tourism industry is also included in hospitality sector. The boom
in travel and tourism has led to the further development of hospitality industry.
In 2003-04 the hospitality industry contributed only 2% of the GDP. However, it is
projected to grow at a rate of 8.8% between 2007-16, which would place India as the
second-fastest growing tourism market in the world. This year the number of tourists
visiting India is estimated to have touched the figure of 4.4 million. With this huge figure,
India is becoming the hottest tourist destination. The arrival of foreign tourists has shown a
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compounded annual growth of 6 per cent over the past 10 years. Besides, travel and
tourism is the second highest foreign exchange earner for India. Moreover, it is also
estimated that the tourism sector will account for nearly 5.3 per cent of GDP and 5.4 per
cent of total employment.
Hotel Industry in India has witnessed tremendous boom in recent years. Hotel Industry is
inextricably linked to the tourism industry and the growth in the Indian tourism industry
has fuelled the growth of Indian hotel industry. The thriving economy and increased
business opportunities in India have acted as a boon for Indian hotel industry. The arrival
of low cost airlines and the associated price wars have given domestic tourists a host of
options. The 'Incredible India' destination campaign and the recently launched 'Atithi Devo
Bhavah' (ADB) campaign have also helped in the growth of domestic and international
tourism and consequently the hotel industry.
According to a report, Hotel Industry in India currently has supply of 110,000 rooms and
there is a shortage of 150,000 rooms fuelling hotel room rates across India. According to
estimates demand is going to exceed supply by at least 100% over the next 2 years. Five-
star hotels in metro cities allot same room, more than once a day to different guests,
receiving almost 24-hour rates from both guests against 6-8 hours usage. With demand-
supply disparity, hotel rates in India are likely to rise by 25% annually and occupancy by
80%, over the next two years. This will affect the competitiveness of India as a cost-
effective tourist destination. To overcome, this shortage Indian hotel industry is adding
about 60,000 quality rooms, currently in different stages of planning and development,
which should be ready by 2012. Hotel Industry in India is also set to get a fillip with Delhi
hosting 2010 Commonwealth Games. The future scenario of Indian hotel industry looks
extremely rosy. It is expected that the budget and mid-market hotel segment will witness
huge growth and expansion while the luxury segment will continue to perform extremely
well over the next few years.
Hotel industry in India has been an important industry to the Indian Economy. It is one of
the largest foreign exchange earners, to the country and also one of the largest employers,
both directly and indirectly.
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The hotel industry in India can be divided into eight segments based on the norms set by
the Ministry of Tourism. They are 5-Star Deluxe, 5-Star, 4-Star, 3-Star, 2-Star, 1-Star,
Heritage and Unclassified. However, the 3-star, 2-star, 1star and unclassified hotels in
India are spread across the length and breadth of the country and are highly fragmented in
nature, whereas, the upscale, mid-market and heritage categories are highly organized. The
upscale category hotels are primarily present in the metros and the tier 1 cities and are now
targeting the tier 2 cities for expansion.
The industry is characterized significantly by small unorganized players, labour-intensive
operations, seasonality, cyclicality, highly capital intensive nature and highly sensitive to
the external factors like economy, terrorism and political status.
The demand for the hotel rooms is driven by the rise in the number of the domestic and
well as the foreign tourists. The demand for the foreign tourists is driven by the level of
growth in Global GDP, increased business activities of other nations with India, growing
number of tourist destinations, rise in trade and sporting events, marketing efforts like
“Atithi Devo Bhava” & “Incredible India”.
Domestic tourist arrivals are the backbone of Indian Hotel Industry as the number of
domestic tourists is more than 100 times as compared to foreign tourists. Domestic tourists
are of 2 types, leisure travellers and business travellers. Growth in leisure travellers is
driven by rising personal discretionary income, evolving lifestyle, growing number of
multi earner families, weekend vacation culture, and improvement in rail, air as well as
road connectivity, diverse topography and rich cultural heritage. Drivers of domestic
business traveling are rise in trade and commerce, increasing geographical spread of
companies, growing MICE culture.
Players like Lemon Tree, IBIS, Park, Sarovar and Ginger have identified that there is
dearth of quality rooms in the mid-market segment across the country, especially in the tier
1 and tier 2 cities. Approximately, 55 per cent of the upcoming inventory is expected to be
in the mid-market and economy segment. Entry of such organized players is expected to
improve the quality of offerings and bridge the wide gap between mid-market and upscale
category.
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By 2015, the Indian Hotel Industry is expected to reach Rs 230 billion, growing at a robust
CAGR of over 12.2%. A total investment of Rs 448 billion is expected in the next five
years.
India is currently ranked 12th in the Asia Pacific region and 68th overall in the list of the
world's attractive destinations, according to the Travel and Tourism Competitiveness
Report 2011 by the World Economic Forum (WEF).
Despite global economic woes, development of hotels in India has been one of the most
lucrative investments. As per Cygnus estimates, total supply (number of hotel rooms) in
India is expected to reach more than 180,000 within five years. Various domestic and
international brands have made significant inroads into this space and more are expected to
follow; around 40 international brands will enter the country in the next five years.
Indian Hotel Industry holds a huge potential due to the positive impact of demand-supply
scenario, growth drivers, investments and government initiatives for tourism sector. To
develop a better understanding of the industry, Cygnus has come out with a comprehensive
Industry insight - Indian hotel industry, which brings out the past performance, trends and
future prospects keeping in mind the various factors.
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2.2 SWOT ANALYSIS OF INDIAN HOTEL INDUSTRY
STRENGTHS
Natural and cultural diversity: India has a rich cultural heritage. The "unity in
diversity" tag attracts most tourists. The coastlines, sunny beaches, backwaters of
Kerala, snow-capped Himalayas and the quiescent lakes are incredible.
Demand-supply gap: Indian hotel industry is facing a mismatch between the
demand and supply of rooms leading to higher room rates and occupancy levels.
With the privilege of hosting Commonwealth Games 2010 there is more demand of
rooms in five star hotels. This has led to the rapid expansion of the sector
Government support: The government has realized the importance of tourism and
has proposed a budget of Rs. 540 crore for the development of the industry. The
priority is being given to the development of the infrastructure and of new tourist
destinations and circuits. The Department of Tourism (DOT) has already started the
"Incredible India" campaign for the promotion of tourism in India.
Increase in the market share: India's share in international tourism and hospitality
market is expected to increase over the long-term. New budget and star hotels are
being established. Moreover, foreign hospitality players are heading towards Indian
markets.
WEAKNESSES
Poor support infrastructure: Though the government is taking necessary steps,
many more things need to be done to improve the infrastructure. In 2003, the total
expenditure made in this regard was US $150 billion in China compared to US$ 21
billion in India.
Slow implementation: The lack of adequate recognition for the tourism industry has
been hampering its growth prospects. Whatever steps are being taken by the
government are implemented at a slower pace.
Susceptible to political events: The internal security scenario and social unrest also
hamper the foreign tourist arrival rates.
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OPPORTUNITIES
Rising income: Owing to the rise in income levels, Indians have more spare money
to spend, which is expected to enhance leisure tourism.
Open sky benefits: With the open sky policy, the travel and tourism industry has
seen an increase in business. Increased airline activity has stimulated demand and has
helped improve the infrastructure. It has benefited both international and domestic
travels.
THREATS
Fluctuations in international tourist arrivals: The total dependency on foreign
tourists can be risky, as there are wide fluctuations in international tourism. Domestic
tourism needs to be given equal importance and measures should be taken to promote
it.
Increasing competition: Several international majors like the Four Seasons,
Shangri-La and Aman Resorts are entering the Indian markets. Two other groups -
the Carlson Group and the Marriott chain - are also looking forward to join this race.
This will increase the competition for the existing Indian hotel majors.
2.3 IMPACT OF RECESSION ON HOTEL INDUSTRY
The state of turmoil in global financial markets has generated new concerns for the
hospitality industry.
Existing hotels in India are also likely to benefit from the improved performance of the
non-room sources of income, namely Food & Beverage (including banquet operations),
Spa, Corporate Club memberships and other ancillary services.
India is expected to see Asia's biggest drop in corporate travel spending, falling 25% this
year compared to 2008.
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2.4 GOOD IDEAS FOR STARTING A HOTEL
Step 1: Decide the services you wish to sell
Choose those services in which you have a strong hold, in which you have majority of your
experience and expertise and which can generate maximum revenue for you. Don't try to
be jack of all trades and sell all event planning services one can think of.
Step 2: Do market research, competitor's analysis and SWOT
analysis.
It's very important to research the market properly before you start up your hotel business.
Making sure this is the right move
Unless you have some practical experience of working in the hotel business you may not
be fully prepared for the level of commitment that will be required. If you have the
opportunity to work in the trade beforehand this might help you to know what to expect.
You will probably be working long hours, often seven days a week, with little opportunity
for a holiday. You will have to have good personal and social skills as well as physical
strength and stamina. If you are planning to run the hotel with your partner or spouse you
should make sure that you are both prepared for what life will be like.
Your market
Your customer base will depend to a certain extent on:
the sector of the market you are targeting
your location
For example, you might be located in a tourist area so the majority of your guests are
holiday makers. If you are beside the sea, many of these will be British, while if you are
near an area of historical or cultural interest your guests are also likely to include many
overseas visitors.
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Estimating demand
Having decided to take the plunge you will need to find out how much demand there is
likely to be for your business. First of all, check that people will want accommodation in
your area. For example, this might be because you are near an international airport, a major
conference centre, a tourist attraction or a town or city which attracts many visitors, both
from the UK and from overseas. You could find out whether there are companies or
organisations locally which regularly need accommodation - for example a language
school might require accommodation every summer for students or a large firm might
often have visiting colleagues from other parts of the country.
Then check out the competition. Count how many hotels and guesthouses there are already
in your area and try to find out how many rooms they have, what facilities they offer and
what prices they charge. Make a note of any self-catering accommodation, caravan and
campsites and so on which might attract your potential customers. Your local tourist
information office may be able to give you some indication of the number of visitors each
year to your area and what type of accommodation they choose.
If you are taking over an existing hotel you will be aware of existing bookings and the
previous proprietors may be able to give you an idea of occupancy levels throughout the
year. You can then decide if you want to try to improve on this by targeting a different type
of clientele.
Why will guests choose your hotel?
You need to make sure that enough people will choose your hotel rather than other hotels
or other accommodation types. It's worth checking out the competition to see:
What kind of guest they attract
What services and facilities they offer
What prices they charge
The sort of special offers and discounts they are prepared to give
When they are fully booked
If the premises have been newly refurbished
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This might immediately show you that there is a gap in the market for a certain type of
hotel, for example, offering business people well equipped rooms with internet connection,
desks and so on. It will also give you a feel for the room rates to charge - although you
should be wary of competing solely on price there is no point in pitching your charges well
above hotels in your area which are similar to yours.
Competitors' Analysis
Find out:
Who are your competitors
Where they live?
What are their employee base (i.e. number of employees)
Client base (i.e. number of clients)
Market value (i.e. what is their reputation in the market)
Market share (i.e. how much business they have occupied)
Turnover (i.e. annual sales)?
How many events they organize in a year?
Why people attend their events?
What is so special about their events?
How do they get clients and sponsors for their events?
All this will help you in developing a better business plan for your hotel company.
Step 3: Prepare business plan for your hotel.
You will develop your business plan on the basis of market research, competitors' analysis
and SWOT analysis of your hotel company. Before developing your business plan, you
should keep some points in mind:
Be realistic and avoid optimism while estimating capital requirements, sales and
profits.
Don't ignore developing strategies which may come handy in case of adversities in
your business.
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Following steps can be adopted for developing a business plan for your hotel :
1. Outline your business objectives.
What do you want to achieve in short term and in long term i.e. what is the mission and
vision of your event planning company? However don't stick too much with long term
objectives as they may become meaningless after a long time or changes in market
situation.
2. Determine your staffing needs and what should be their skill sets.
Develop the organizational structure of your hotel company. Outline your own skills,
knowledge and experience and determine how they can be used to achieve business
success. Prepare resume of yourself and all of the people who will be involved in your
business. These resumes will come handy when you will look for partners/investors later
on.
3. Determine how exactly you will find clients?
How you will approach them and how you will sell your services. How you will expand
your business? What will be your rules, regulations, policies and procedures regarding
payments, reimbursement, penalties, cancellation and behaviour?
4. Estimate your capital requirements for one whole year.
How you will manage the cash flow?
5. Prepare a contingency plan
I.e. what strategies you will adopt in case of capital loss, economic crisis or market
downturn.
Step 4: On the basis of your business plan determine your operating
cost
I.e. the cost to run the business.
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Step 5: On the basis of the operating cost, decide your own fees and
the staff salary.
Step 6: Get investors/ business partners for your hotel company
On the basis of market research, competitors' analysis, SWOT analysis and your business
plan.
Step 7: Decide name and logo of your company and its status
I.e. whether organization will be a company, firm or establishment.
Step 8: Premises, recruitment and marketing your business
Hire office. Buy office stationary and recruit staff. Launch a new flashy website which
effectively describes your business and services in great detail. Hire an internet marketing
professional to promote it. If you won't promote your website, then nobody will visit your
website. So in that case your website will be as good as nothing.
Step 9: Register your Company
If you have opened a company then get it registered under the Company's Act'. If you have
opened a firm then gets it registered under the 'Indian Partnership Act'. If you have opened
an establishment, then get it registered under the 'Shops and Establishment Act‘. An event
management company is just like any other company. So whatever rules and procedures
are required to start a company, also applies to an event management company.
Step 10: Register to pay tax
Following taxes are to be paid by a hotel. Income Tax, TDS (Tax deducted at source),
service tax, entertainment tax and taxes related to moving goods and merchandise from one
destination to others. Get PAN card to file Income Tax return. TAN card to file TDS
return. Get registration for service tax. The service tax on hotel in India is 12.36%
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Chapter 3
Projected Company Profile
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3.1 ORGANISATION
Name of Organisation: PARADISE HOTEL CUM RESORT
Type: Proprietorship Firm
Tagline: ―Somewhere between Heaven and Earth‖
Symbol:
Established: 2012-13
Address: Opp. Surat Airport, Dumas Road, Near Magdalla, Surat.
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Mission-Vision-Values:
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3.2 SERVICES
The following are the proposed products and services will be provided by the PARADISE
Resort cum Hotel.
Hotel
Rooms & Suites
The hotel rooms will be of stylish, comfortable, well-furnished and air-conditioned rooms
with contemporary luxury and gracious service.
There will be two catagories of rooms:
Standard Rooms
Deluxe Rooms
Deluxe Room have 2 bedrooms in each,
one bathroom with steambath facility,
one LCD television, one computer,
coupboard, a gallary from which a nice
view can be seen and intercome telecome facility is also be there. We will have total 30
deluxe rooms in our hotel.
Standard Rooms includes 1 bedroom with two separate beds, one bathrooms, one
television, a coupboard etc. We will have total 50 standard rooms in our hotel.
Multi-Purpose Hall (Banquet)
The Hotel will have a banquet hall with
a capacity of 150 and 400 for parties,
banquet hall also be used for
exhibitions/events. The banquet hall is
very essential for the hotel and will be
done in a western concept.
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Conference Hall
There will be 1 conferencing hall for
business meeting, conference and
gathering etc. the hall will be equipped
with all the modern conferencing aids.
Restaurant
The restaurant will be having 2 parts
veg and non-veg. A Lounge Bar and
a coffee shop, which will be offering
a choice of continental. Chinese and
variety of food from Indian cuisine,
with live piano music, and one open
restaurant with the above amenities
for the outside visitors will be
having.
The restaurant will have a variety of dishes like,
South Indian dishes
Chinese dishes
Italian dishes
Gujarati Thalis
North Indian dishes
Fast Foods
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Resort Complex
Ayurveda Centre
The resort will be having an Ayurveda
centre. Ayurveda is the alternative medicine
of Indian tradition, originated in ancient
times. It is a natural healing science for cure,
prevention or rejuvenation of the body, based
on the use of herbs or herbal medicines.
Kids Arena and Board Games
The Resort Complex will be having a
separate area for the kids; Kids Arena for
children to have fun and play all the time
while visiting the Resort.
The Resort will be having an area for board
games, which will provide additional options
for the guests to spend excellence time in the
Resort.
Swimming Pool, Jacuzzi, Spa, and Steam Sauna
A swimming pool is also an important part of
the Hotel. The swimming pool facility is a
must for any club and thus it will be
instrumental for the popularity of the resort. It
will be 1 of the main basis of marketing the
resort facilities. There will also a small nearby
kid‘s swimming pool. There will be a juice
and snack bar along with the swimming pool
to add to the service provisions.
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Handicraft Shops
There will be a part of handicraft shops where
anyone can buy a huge range of handicraft products
like,
Metal Crafts
Metal Ornamentation
Pottery & Stone Craft
Marble Inlay Work
Wood Craft
Precious and Semi-precious Stones
Paintings
Textiles
Carpets etc.
Garden
In the proposed project there is also a beautiful
and decorated Garden and its well-kept
gardens infuses a breath of fresh air and fill
both young and old with vitality, which will be
provided on rent for the enjoyment. The
capacity of the garden will be around 1000
people with huge car parking capacity.
Tennis Court
A tennis court is also available in PARADISE
hotel where anyone can play and enjoy their
best time.
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Indoor Games Facility
Games mean fun and frolic for everyone and
are the best way to spend some time in
merriment and leisure. Indulge in our in-
house indoor games viz, chess, carom, virtual
games, your children can have a world of
their own playing games and much more.
Cyber café cum Game Zone
Virtual games, video games and Sony play
station where your children can have a world
of their own playing games and much more.
Wedding / Marriage Arrangements
Wedding/Marriage Arrangements- We do
have the facility for hosting a marriage
ceremony/reception or a social gathering to
make this immense significant moment of
your life a special and memorable one for a
lifetime.
Dive In Movie Theatre
Dive in Theatre, where you can watch
movie in the open area.
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3.3 SWOT ANALYSIS OF HOTEL
Products/Services Research
If you are managing a hotel then it is necessary for you as a hotel manager to do research
of the products/ services promoted and sold by your corporate client.
Find out how the company promotes its products
How the company wants to build/enhance the image associated with its product
(also known as the brand image)?
What is the market value and market share of the company and its products?
Who are the customers of the product?
What are the features of the product?
What are the advantages and disadvantages of the product in comparison to
competitors' products?
All this research will later help you in making an effecting promotional campaign for your
corporate event.
SWOT Analysis
In SWOT Analysis:
'S' stands for Strengths 'O' stands for Opportunities
'W' stands for Weaknesses 'T' stands for Threats
It is a strategic planning tool which is used to identify and analyze the strengths,
weaknesses, opportunities and threats involved in your project. SWOT analysis can also be
done on your organization.
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Strengths:
These are the attributes of your project/organization which are helpful in achieving
project's objectives. For e.g.: experienced service team, high motivation level, excellent
PR, good market share etc.
Weaknesses:
These are those attributes of your project/organization which are harmful in achieving
project's objectives. For e.g.: social loafing, lack of funds, inexperienced staff, low
energy level, lack of media and corporate contacts etc.
Opportunities:
These are those external factors which are helpful in achieving the project's objectives.
For e.g.: little competition, favorable economic conditions, support from the local
authorities, availability of the state of the art infrastructure etc.
Threats:
These are those external factors which are harmful in achieving the project's objectives.
For e.g.: high competition, little or no support from local authorities, bad weather, poor
infrastructure, high lab our rate, unavailability of raw material etc.
It is very important that you conduct SWOT analysis before developing a hotel plan to
develop a strategy which maximizes the potential of strengths and opportunities of your
project and at the same time, minimizes the impact of the weaknesses and threats.
Analysis Report
After conducting market, competitors, product/service research and SWOT analysis, create
a report which contain details of all the research work done by you. Documentation of your
research work is important. Your analysis report will also help you in getting loans for
your hotel.
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3.4 COMPETITORS
Basically there are many local players in Hotel Industry in Surat. But here is a list of very
influencing players:
The Grand Bhagvati (TGB)
The Gateway Hotel
Best Western Yuvraj
Embassy Hotel
Hotel Budget Inn
Lords Plaza
Hotel Golden Plaza
Hotel Relax Inn
Ginger
Hotel Oyester
Royal Park Club Resort
Tex Palazzo
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3.5 ADVERTISEMENT PICTURES
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3.6 PLANT LAYOUT
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3.7 CAPACITY PLANNING
Hotel Number
Types of Rooms
- Standard 50
- Deluxe 30
Restaurant
- Non Veg 01
- Veg 01
Administrative Office 01
Handicraft Shops 10
Multipurpose Hall 01
Garden 01
Children Playground 01
Swimming Pool 02
Tennis Court 01
Indoor Game Centre 01
Dive In Cinema Theatre 01
Ayurveda Centre 01
Staff Quarter 01
Cyber café cum Video Game Zone 01
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3.8 LICENCE OR PERMISSIONS REQUIRED FROM GOVERNMENT
The Ministry of Tourism will approve hotels at project stage based on documentation.
Documentation
Duly filled up Application form.
Application Fee.
Proposed name of the hotel.
Name of the promoters with a note on their business antecedents.
Complete postal address of the promoters/tel./fax/email
Status of the owners/ promoters:
o If Public/ private limited company with copies of Memorandum and Articles
of Association
o If Partnership, a copy of partnership deed and certificate of registration
o If proprietary concern, name and address of proprietor/certificate of
registration
Location of hotel site with postal address
Details of the site
o Area (in sq. meters)
o Title - owned/ leased with copies of sale/ lease deed
o Copy of Land Use Permit from local authorities
o Distances from Railway station, airport, main shopping centers (in Kms)
Details of the project:
o Copy of feasibility report.
o Star category planned.
o Number of rooms and area for each type of room (in sq.ft.)
o Number of attached baths and areas (in sq.ft.)
o Details of public areas - Lobby/lounge restaurants, bars, shopping, banquet /
conference halls, health club, swimming pool, parking facilities.
o Facilities for the physically challenged persons.
o Eco-friendly practices and any other additional facilities.
o Date by which project is expected to be completed and operational.
Blue prints/ sketch plans signed by owners and architect showing
o Site plan
o Front and side elevations
o Floor plans for all floors
o Detail of guest room and bath room with dimensions in sq.ft.
o Details of Fire Fighting Measures/ Hydrants etc.
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Air-conditioning details for guest rooms, public areas
Local approvals by:
o Municipal authorities
o Concerned Police Authorities
o Any other local authority as maybe required.
o Approval /NOC from Airport Authority of India (for projects located near
Airports)
Proposed capital structure:
o Total project cost
o Equity component with details of paid up capital
o Debt - with current and proposed sources of funding
Certificates/No Objection Certificate's (attested copies)
o Certificate/ license of Registration from Municipality/ Corporation
o Certificate/ license from concerned Police Department authorizing the
running of a hotel.
o Clearance Certificate from Municipal Health Officer/ Sanitary Inspector.
o No Objection Certificate from the Fire Service Department (Local Fire
Brigade Authorities)
o Public liability insurance
o Money Changers License (necessary for 4*,5*& 5*-D only)
Sanctioned building plans/occupancy certificate
If classified earlier, a copy of the earlier & ―Certificate of Classification issued by
Department of Tourism‖
Any other local authority as maybe required.
Approval /NOC from Airport Authority of India (AAI) for projects located near
Airports
Indicate whether a few rooms or all rooms are to be let out on a time-share basis.
Application fees
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Chapter 4
Research Methodology
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4.1 REASON FOR CHOOSING TOPIC:-
Hotel Industry in India has witnessed tremendous boom in recent years. Hotel Industry is
inextricably linked to the tourism industry and the growth in the Indian tourism industry
has fuelled the growth of Indian hotel industry. The thriving economy and increased
business opportunities in India have acted as a boon for Indian hotel industry. The arrival
of low cost airlines and the associated price wars have given domestic tourists a host of
options. The 'Incredible India' destination campaign and the recently launched 'Atithi
Devo Bhavah' (ADB) and „Khushboo Gujarat Ki‟ campaign have also helped in the
growth of domestic and international tourism and consequently the hotel industry.
4.2 NEED FOR RESEARCH:-
The main need for research is to know how project is to be financed for starting an hotel on
the basis of the projected fund flow and cash flow rather than the balance sheets of the
project sponsors so; the main reason is to be known on the what basis and what criteria
loans are given to the an event planner firm by financial institution and bank.
Also the purpose of this research is to know how project is to be financed, the need of
research is to know how this loan provided to the firm and what are the steps and
procedure involve in it.
4.3 RESEARCH PROBLEM STATEMENT:-
―Project Preparation and Appraisal of Hotel cum Resort on basis of both primary data and
secondary data.‖
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4.4 OBJECTIVE OF RESEARCH:-
Primary Objective:-
To prepare and appraise the project for hotel cum resort.
Secondary Objective:-
To know how project is to be financed for starting hotel and to know how this
loan provided to the firm and what are the steps and procedure involve in it.
To analysis financial evaluation of the project.
To know which the main area are that to be covered in project financing.
To find out appropriateness of the project by using various financial tools and
techniques of the project.
4.5 RESEARCH DESIGN:-
This study is descriptive because, it gives useful information from available data. So that,
here ―Descriptive Research design‖ is to be used. This research is based on secondary data.
4.6 CASE STUDY:-
Project Preparation and Appraisal of Hotel cum Resort is based on case study. The basic
purpose behind this topic is to know how project is to be financed for starting hotel cum
resort on the basis of the projected fund flow and cash flow rather than the balance sheets
of the project sponsors so; the main reason is to be known on the what basis and what
criteria loans are given to the hotel cum resort by financial institution and bank.
4.7 DATA COLLECTION:-
Data collection is based on secondary data only which is gathered from local hotels of
Surat, which are as follows:
TGB Hotels
Avadh Restaurant
Step up Restaurant & Banquet
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4.8 DATA ANALYSIS:-
Following data analysis tool must be applied in this project:
Data Classification and Tabulation
Ratio Analysis
Projected Fund Flow Statement
Projected Cash Flow Statement
Projected Profit and Loss Account
Projected Balance Sheet Statement
Projected Working Capital
Sensitivity Analysis
Net Present Value
4.9 LIMITATION OF RESEARCH:-
The project study undertakes only certain aspect of hotel industry.
The project report based on the assumption and projected data.
Some of firm might give wrong information about their personal detail viz. Income
& strategy.
Some external factor doesn‘t consider.
If there is any error in data, all through they collected from official websites may
influence the result & finding
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4.10 SCOPE OF RESEARCH:-
Scope of study means the study whichever is carried out where it will helpful in future.
The study will helpful to know how project is to be financed for starting a hotel.
The study will helpful to know how loan provided to the firm and what are the
steps and procedure involve in it.
The study will helpful to know what are the technical and fundamental factor affect
while starting a new hotel.
On the basis of the study individual firm can take the corrective actions.
The study will be helpful to know the raising pattern of fund in market.
It will be helpful to the company to know where it is lacking behind to raising fund
from market.
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Chapter 5
Data Analysis and Findings
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5.1 COST OF FINANCE
Cost of Finance
Particular Amount
Land 5,00,00,000
Buildings 3,00,00,000
Furniture 80,00,000
Computers (15) 5,00,000
Motor Car (5) 50,00,000
Working Capital 10,00,000
Total Cost of Finance 9,45,00,000
5.2 MEANS OF FINANCE
Means of Finance Particular Amount
Own Capital 2,83,50,000
Term Loan 6,61,50,000
Total Means of Finance 9,45,00,000
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5.3 PROJECTED PROFIT AND LOSS ACCOUNT
Projected Profit & Loss Account
Particulars Amount
2012-13 2013-14 2014-15 2015-16 2016-17
Income (Annexure A)
12,53,64,000 16,29,48,000 19,77,06,000 22,91,58,000 26,39,10,000
Material Consumed
3,00,00,000 3,30,00,000 3,69,60,000 4,13,95,200 4,63,62,624
Operating Expense
(Annexure B) 5,73,00,000 7,05,30,000 9,25,89,600 10,50,80,952 11,86,24,445
Gross Profit 3,80,64,000 5,94,18,000 6,81,56,400 8,26,81,848 9,89,22,931
Gross Profit In Percentage
30.36% 36.46% 34.47% 36.08% 37.48%
Administrative
Exp (Annexure C)
1,24,60,000 1,36,06,000 1,52,44,780 1,71,83,860 1,96,11,439
Depriciation (Annexure D)
48,50,000 41,77,500 75,67,875 58,29,994 68,28,865
Profit Before Interest And
Tax 2,07,54,000 4,16,34,500 4,53,43,745 5,96,67,994 7,24,82,628
Interest
(Annexure E) 1,08,15,525 84,34,125 62,51,175 36,71,325 12,89,925
Profit Before Tax (PBT)
99,38,475 3,32,00,375 3,90,92,570 5,59,96,669 7,11,92,703
Prvocision For
Tax 20,00,000 1,15,00,000 1,60,00,000 2,00,00,000 2,30,00,000
Net Profit After Tax
79,38,475 2,17,00,375 2,30,92,570 3,59,96,669 4,81,92,703
Net Profit In Percentage
6.33% 13.32% 11.68% 15.71% 18.26%
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BRCM COLLEGE OF BUSINESS ADMINISTRATION
5.4 PROJECTED BALANCE SHEET
Projected Balance Sheet
Particulars Amount
2012-13 2013-14 2014-15 2015-16 2016-17
Liabilities
Own Capital 2,83,50,000 2,83,50,000 2,83,50,000 2,83,50,000 2,83,50,000
Reserve and surplus
79,38,475 2,96,38,850 5,27,31,420 8,87,28,089 13,69,20,792
Secured Loan 5,29,20,000 3,96,90,000 2,64,60,000 1,32,30,000 0
Total Liabilities 8,92,08,475 9,76,78,850 10,75,41,420 13,03,08,089 16,52,70,792
Assets
Fixed Assets
Land 5,00,00,000 7,00,00,000 7,00,00,000 10,25,00,000 10,25,00,000
Buildings 2,70,00,000 2,43,00,000 3,08,70,000 2,77,83,000 4,30,04,700
Furniture 72,00,000 64,80,000 1,03,32,000 92,98,800 83,68,920
Motor Car 42,50,000 36,12,500 64,70,625 55,00,031 46,75,027
Computer 2,00,000 80,000 12,32,000 4,92,800 1,97,120
Total Fixed Assets
8,86,50,000 10,44,72,500 11,89,04,625 14,55,74,631 15,87,45,767
Current Assets
Stock 4,00,000 5,00,000 5,50,000 5,80,000 6,00,000
Cash & Bank Balance
29,08,475 49,86,350 48,86,795 50,33,458 2,98,25,025
Total CA 33,08,475 54,86,350 54,36,795 56,13,458 3,04,25,025
Current Liabilities
Sundry Creditors 7,50,000 7,80,000 8,00,000 8,80,000 9,00,000
Provision for Tax 20,00,000 1,15,00,000 1,60,00,000 2,00,00,000 2,30,00,000
Total CL 27,50,000 1,22,80,000 1,68,00,000 2,08,80,000 2,39,00,000
Total Assets 8,92,08,475 9,76,78,850 10,75,41,420 13,03,08,089 16,52,70,792
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BRCM COLLEGE OF BUSINESS ADMINISTRATION
5.5 WORKING CAPITAL STATEMENT
Working Capital Statement
Particulars Amount
2012-13 2013-14 2014-15 2015-16 2016-17
Current Assets
Stock 4,00,000 5,00,000 5,50,000 5,80,000 6,00,000
Cash and Bank 29,08,475 49,86,350 48,86,795 50,33,458 2,98,25,025
Total CA 33,08,475 54,86,350 54,36,795 56,13,458 3,04,25,025
Current Liabilities
Sundry Creditors 7,50,000 7,80,000 8,00,000 8,80,000 9,00,000
Provision For Tax 20,00,000 1,15,00,000 1,60,00,000 2,00,00,000 2,30,00,000
Total CL 27,50,000 1,22,80,000 1,68,00,000 2,08,80,000 2,39,00,000
Net Working Capital
5,58,475 (67,93,650) (1,13,63,205) (1,52,66,542) 65,25,025
5.6 FUND FLOW STATEMENT
Fund Flow Statement
Particulars Year
2012-13 2013-14 2014-15 2015-16 2016-17
Sources of Fund
Profit After Tax add
Depreciation 2,36,04,000 3,43,12,000 3,69,11,620 4,54,97,988 5,63,11,492
Own Capital 2,83,50,000 0 0 0 0
Bank Loan 6,61,50,000 0 0 0 0
Net Decrease in Working Capital
(5,58,475) (10,82,000) (16,81,620) (39,03,337) (2,30,81,492)
Total Sources 11,75,45,525 3,32,30,000 3,52,30,000 4,94,01,325 3,32,30,000
Application of Funds
Repayment Instalment
1,32,30,000 1,32,30,000 1,32,30,000 1,32,30,000 1,32,30,000
Land 5,00,00,000 2,00,00,000 0 3,25,00,000 0
Building 3,00,00,000 0 1,00,00,000 0 2,00,00,000
Furniture 80,00,000 0 50,00,000 0 0
Computers 5,00,000 0 30,00,000 0 0
Motor Car 50,00,000 0 40,00,000 0 0
Interest on Capital
1,08,15,525 84,34,125 62,51,175 36,71,325 12,89,925
Total Application
11,75,45,525 3,32,30,000 3,52,30,000 4,94,01,325 3,32,30,000
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BRCM COLLEGE OF BUSINESS ADMINISTRATION
5.7 CASH FLOW STATEMENT
Cash Flow Statement
Particulars Amount
2012-13 2013-14 2014-15 2015-16 2016-17
Operating Activities
Net Profit After Tax
79,38,475 2,17,00,375 2,30,92,570 3,59,96,669 4,81,92,703
Depreciation 48,50,000 41,77,500 75,67,875 58,29,994 68,28,865
Interest 1,08,15,525 84,34,125 62,51,175 36,71,325 12,89,925
Stock (4,00,000) (1,00,000) (50,000) (30,000) (20,000)
Creditors 7,50,000 30,000 20,000 80,000 20,000
Provision for tax
20,00,000 95,00,000 45,00,000 40,00,000 30,00,000
Total Cash from
Operation 2,59,54,000 4,37,42,000 4,13,81,620 4,95,47,988 5,93,11,492
Less: Actual Tax payments
(29,81,543) (99,60,113) (1,17,27,771) (1,67,99,001) (2,13,57,811)
Net Cash from Operation
2,29,72,458 3,37,81,888 2,96,53,849 3,27,48,987 3,79,53,681
Investment Activities
Land (5,00,00,000) (2,00,00,000) - (3,25,00,000)
Building (3,00,00,000)
(1,00,00,000)
(2,00,00,000)
Furniture (80,00,000) - (50,00,000)
Computers (5,00,000) - (30,00,000)
Motor Car (50,00,000) - (40,00,000)
Total Cash In Investment
(9,35,00,000) (2,00,00,000) (2,20,00,000) (3,25,00,000) (2,00,00,000)
Financing Activities
Own Capital 2,83,50,000 - -
Secured Loan 6,61,50,000 - -
Repayment of Loan
(1,32,30,000) (1,32,30,000) (1,32,30,000) (1,32,30,000) (1,32,30,000)
Interest (1,08,15,525) (84,34,125) (62,51,175) (36,71,325) (12,89,925)
Total Cash from Finance
7,04,54,475 (2,16,64,125) (1,94,81,175) (1,69,01,325) (1,45,19,925)
Total Cash Flow
29,08,475 20,77,875 (99,555) 1,46,663 2,47,91,567
Opening Balance of
Cash - 29,08,475 49,86,350 48,86,795 50,33,458
Closing Bank Balance
29,08,475 49,86,350 48,86,795 50,33,458 2,98,25,025
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BRCM COLLEGE OF BUSINESS ADMINISTRATION
5.8 ANNEXURE
A…Income from hotel room rent Particular 2012-13 2013-14 2014-15 2015-16 2016-17
Plant Capacity Usage (In %)
62% 74% 83% 87% 95%
Rooms:
Standard (Rs.2500) (50 Rooms)
77,500 92,500 1,03,750 1,30,500 1,42,500
Deluxe (Rs.4000) (30 Rooms)
74,400 88,800 99,600 1,17,450 1,28,250
Total Usage 1,51,900 1,81,300 2,03,350 2,47,950 2,70,750
Days 30 30 30 30 30
Multipurpose hall (Rs. 500000)
3,10,000 3,70,000 4,15,000 4,35,000 4,75,000
Total 48,67,000 58,09,000 65,15,500 78,73,500 85,97,500
Month 12 12 12 12 12
Total Sales 5,84,04,000 6,97,08,000 7,81,86,000 9,44,82,000 10,31,70,000
A…Income from Restaurant Particular 2012-13 2013-14 2014-15 2015-16 2016-17
Total table 100 100 100 100 100
Capacity Usages 62% 74% 83% 87% 95%
62 74 83 87 95
Average Amount of Bill (4-persons)
3,000 3,500 4,000 4,300 4,700
Total Usage 1,86,000 2,59,000 3,32,000 3,74,100 4,46,500
Days 30 30 30 30 30
Total 55,80,000 77,70,000 99,60,000 1,12,23,000 1,33,95,000
Month 12 12 12 12 12
Total Sales 6,69,60,000 9,32,40,000 11,95,20,000 13,46,76,000 16,07,40,000
Total Revenue 12,53,64,000 16,29,48,000 19,77,06,000 22,91,58,000 26,39,10,000
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BRCM COLLEGE OF BUSINESS ADMINISTRATION
B…Operating Expenses
Particular 2012-13 2013-14 2014-15 2015-16 2016-17
Salary Expenses 4,50,00,000 5,70,00,000 7,70,40,000 8,72,10,000 9,72,00,000
Consumable Items
3,00,000 3,30,000 3,69,600 4,13,952 4,76,045
Gas & Fuel Expenses
1,20,00,000 1,32,00,000 1,51,80,000 1,74,57,000 2,09,48,400
Total 5,73,00,000 7,05,30,000 9,25,89,600 10,50,80,952 11,86,24,445
Salary Expense Statement
Particular 2012-13 2013-14 2014-15 2015-16 2016-17
Staff 300 350 400 425 450
Months 12 12 12 12 12
Average Salary per Month
10,000 11,000 12,750 13,500.00 14,000
Total Salary of Restaurant Staff
3,60,00,000 4,62,00,000 6,12,00,000 6,88,50,000 7,56,00,000
Manger 25 30 40 45 50
Average Salary of Manger
30,000 30,000 33,000 34,000 36,000
Total Salary of Mangers
90,00,000 1,08,00,000 1,58,40,000 1,83,60,000 2,16,00,000
Total Salary
Expenses 4,50,00,000 5,70,00,000 7,70,40,000 8,72,10,000 9,72,00,000
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BRCM COLLEGE OF BUSINESS ADMINISTRATION
C…Administrative Expense
Particular 2012-13 2013-14 2014-15 2015-16 2016-17
Office Expense 15,00,000 16,50,000 18,64,500 20,88,240 24,01,476
Stationary Exp 3,00,000 3,30,000 3,72,900 4,17,648 4,80,295
Miscellaneous Exp 2,50,000 2,75,000 3,10,750 3,48,040 4,00,246
Accountant Fees 1,50,000 1,65,000 1,86,450 2,08,824 2,40,148
Advertisement Exp 15,00,000 16,50,000 18,64,500 20,88,240 24,01,476
Telephone Exp 3,00,000 3,30,000 3,72,900 4,17,648 4,80,295
Decoration Expenses 5,00,000 5,50,000 6,21,500 6,96,080 8,00,492
House Keeping Expenses
8,00,000 8,80,000 9,94,400 11,13,728 12,80,787
Insurance Expenses 10,00,000 10,00,000 10,00,000 10,00,000 10,00,000
Cleaning and Laundry Expenses
9,00,000 9,90,000 11,18,700 12,86,505 14,79,481
Repair and maintenance
Expenses 4,00,000 4,40,000 4,97,200 5,71,780 6,57,547
Electricity 48,60,000 53,46,000 60,40,980 69,47,127 79,89,196
Total 1,24,60,000 1,36,06,000 1,52,44,780 1,71,83,860 1,96,11,439
D…Depreciation
Particular 2012-13 2013-14 2014-15 2015-16 2016-17
Buildings 3,00,00,000 2,70,00,000 3,43,00,000 3,08,70,000 4,77,83,000
Less: Depreciation (10%)
30,00,000 27,00,000 34,30,000 30,87,000 47,78,300
2,70,00,000 2,43,00,000 3,08,70,000 2,77,83,000 4,30,04,700
Furniture 80,00,000 72,00,000 1,14,80,000 1,03,32,000 92,98,800
Less: Depreciation (10%)
8,00,000 7,20,000 11,48,000 10,33,200 9,29,880
72,00,000 64,80,000 1,03,32,000 92,98,800 83,68,920
Motor Car 50,00,000 42,50,000 76,12,500 64,70,625 55,00,031
Less: Depreciation (15%)
7,50,000 6,37,500 11,41,875 9,70,594 8,25,005
42,50,000 36,12,500 64,70,625 55,00,031 46,75,027
Computers 5,00,000 2,00,000 30,80,000 12,32,000 4,92,800
Less: Depreciation (60%)
3,00,000 1,20,000 18,48,000 7,39,200 2,95,680
2,00,000 80,000 12,32,000 4,92,800 1,97,120
Total Depreciation 48,50,000 41,77,500 75,67,875 58,29,994 68,28,865
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BRCM COLLEGE OF BUSINESS ADMINISTRATION
5.9 PROJECTED RATIO
Current Ratio
Particulars Year
2012-13 2013-14 2014-15 2015-16 2016-17
Current Asset (A) 33,08,475 54,86,350 54,36,795 56,13,458 3,04,25,025
Current Liability (B) 27,50,000 1,22,80,000 1,68,00,000 2,08,80,000 2,39,00,000
Current Ratio (A/B) 1.20 0.45 0.32 0.27 1.27
Interpretation
This ratio shows the proportion of current assets to current liabilities. It is measures of
working capital available at a particular time. It indicates short-term financial strength of
the firm and it is measure of whether firm will be able to meet its current liability. Here
firm‘s current ratio decreased for 4 years and then it increases to 1.27 which indicate that
firm has in strong position to meet its current liabilities.
1.20
0.45 0.32
0.27
1.27
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
2012-13 2013-14 2014-15 2015-16 2016-17
Current Ratio
“Project Preparation and Appraisal of Hotel cum Resort”
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BRCM COLLEGE OF BUSINESS ADMINISTRATION
Operating Profit Ratio
Particulars Year
2012-13 2013-14 2014-15 2015-16 2016-17
PBIT (A) 2,07,54,000 4,16,34,500 4,53,43,745 5,96,67,994 7,24,82,628
Net Income (B) 12,53,64,000 16,29,48,000 19,77,06,000 22,91,58,000 26,39,10,000
OPERATING PROFIT RATIO ((A)/(B))*100
16.55% 25.55% 22.93% 26.04% 27.46%
Interpretation
It shows efficiency of the management. The higher the ratio, the less will be margin
available to proprietor. Here firm operating profit ratio fluctuated in moderate level which
indicates more margins available to proprietor and it increases year by year. And it
increases is last year compare to first year.
16.55%
25.55% 22.93%
26.04% 27.46%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2012-13 2013-14 2014-15 2015-16 2016-17
Operating Ratio
“Project Preparation and Appraisal of Hotel cum Resort”
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BRCM COLLEGE OF BUSINESS ADMINISTRATION
Net Profit Ratio
Particulars Year
2012-13 2013-14 2014-15 2015-16 2016-17
PAT (A) 79,38,475 2,17,00,375 2,30,92,570 3,59,96,669 4,81,92,703
SALES (B) 12,53,64,000 16,29,48,000 19,77,06,000 22,91,58,000 26,39,10,000
NET PROFIT RATIO
((A)/(B))*100 6.33% 13.32% 11.68% 15.71% 18.26%
Interpretation
It shows efficiency of the management. The higher the ratio, the less will be margin
available to proprietor after deducting interest and tax. Here firm operating profit increases
year by year which indicates more margins available to proprietor due to the increase in
revenue.
6.33%
13.32%
11.68%
15.71%
18.26%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
2012-13 2013-14 2014-15 2015-16 2016-17
Net Profit Ratio
“Project Preparation and Appraisal of Hotel cum Resort”
65
BRCM COLLEGE OF BUSINESS ADMINISTRATION
Debt Equity Ratio
Particulars Year
2012-13 2013-14 2014-15 2015-16 2016-17
Total Long Term Debt (A)
5,29,20,000 3,96,90,000 2,64,60,000 1,32,30,000 0
Capital (B) 2,83,50,000 2,83,50,000 2,83,50,000 2,83,50,000 2,83,50,000
Reserve (c) 7938475 29638850 52731420 88728089.25 136920791.8
Debt Equity Ratio (A/(B+C))
1.46 0.68 0.33 0.11 0.00
Interpretation
This ratio established relationship between the outside long-term liabilities and owners
fund. If this ratio rises, it shows that the financial risk of firm has decreased. Here firm debt
equity ratio decreased by year which indicate there will be no high business risk for the
firm.
1.46
0.68
0.33 0.11 0.00
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2012-13 2013-14 2014-15 2015-16 2016-17
Debt Equity Ratio
“Project Preparation and Appraisal of Hotel cum Resort”
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BRCM COLLEGE OF BUSINESS ADMINISTRATION
Debt Service Coverage Ratio
Particulars Year
2012-13 2013-14 2014-15 2015-16 2016-17
PBIT (A) 2,07,54,000 4,16,34,500 4,53,43,745 5,96,67,994 7,24,82,628
Depreciation (B) 48,50,000 41,77,500 75,67,875 58,29,994 68,28,865
Interest on Term Loan (C)
1,08,15,525 84,34,125 62,51,175 36,71,325 12,89,925
Instalment of Loan (D)
1,32,30,000 1,32,30,000 1,32,30,000 1,32,30,000 1,32,30,000
DSCR ((A+B+C)/(C+D))
1.51 2.50 3.04 4.09 5.55
Interpretation
This ratio is calculated by bank when it has to considered term loan application. This ratio
indicates the measure of safety available for payment of instalment of the term loan and
interest due. If this ratio is high, lower the currency on the loan. Here firm DSCR ratio
increase with a high amount.
1.51
2.50
3.04
4.09
5.55
0.00
1.00
2.00
3.00
4.00
5.00
6.00
2012-13 2013-14 2014-15 2015-16 2016-17
Debt Service Coverage Ratio
“Project Preparation and Appraisal of Hotel cum Resort”
67
BRCM COLLEGE OF BUSINESS ADMINISTRATION
Return on Assets
Particulars Year
2012-13 2013-14 2014-15 2015-16 2016-17
FIXED ASSETS 8,86,50,000 10,44,72,500 11,89,04,625 14,55,74,631 15,87,45,767
PAT 79,38,475 2,17,00,375 2,30,92,570 3,59,96,669 4,81,92,703
Return on Assets
((B)/(A)) 8.95% 20.77% 19.42% 24.73% 30.36%
Interpretation
Return on assets indicate the profitability of firm and is very much in use among financial
analysts. If this ratio is more it means assets are being used effectively to earn profit of the
firm. Here ratio increased then it decreased then after it also increased which indicate
moderate management style of the firm. And at last it increases constantly which suggest
that the management of firm is going to be best.
8.95%
20.77% 19.42%
24.73%
30.36%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
2012-13 2013-14 2014-15 2015-16 2016-17
Return on Assets
“Project Preparation and Appraisal of Hotel cum Resort”
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BRCM COLLEGE OF BUSINESS ADMINISTRATION
Return on Capital Employed
Particulars Year
2012-13 2013-14 2014-15 2015-16 2016-17
Capital Employed (A)
8,92,08,475 9,76,78,850 10,75,41,420 13,03,08,089 16,52,70,792
PAT (B) 79,38,475 2,17,00,375 2,30,92,570 3,59,96,669 4,81,92,703
Return on Capital
Employed 8.90% 22.22% 21.47% 27.62% 29.16%
Interpretation
Return on capital employed indicate the profitability of firm and is very much in use
among financial analysts. Here ratio increased by year which indicate moderate
management style of the firm. It shows the profitability of firm against capital employed.
8.90%
22.22% 21.47%
27.62% 29.16%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
2012-13 2013-14 2014-15 2015-16 2016-17
Return on Capital Employed
“Project Preparation and Appraisal of Hotel cum Resort”
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BRCM COLLEGE OF BUSINESS ADMINISTRATION
5.10 REPAYMENT OF LOAN SCHEDULE
E…Interest No Amount Interest Instalment Ins+Int Total
1 6,61,50,000 9,92,250 11,02,500.00 20,94,750 6,50,47,500
2 6,50,47,500 9,75,713 11,02,500.00 20,78,213 6,39,45,000
3 6,39,45,000 9,59,175 11,02,500.00 20,61,675 6,28,42,500
4 6,28,42,500 9,42,638 11,02,500.00 20,45,138 6,17,40,000
5 6,17,40,000 9,26,100 11,02,500.00 20,28,600 6,06,37,500
6 6,06,37,500 9,09,563 11,02,500.00 20,12,063 5,95,35,000
7 5,95,35,000 8,93,025 11,02,500.00 19,95,525 5,84,32,500
8 5,84,32,500 8,76,488 11,02,500.00 19,78,988 5,73,30,000
9 5,73,30,000 8,59,950 11,02,500.00 19,62,450 5,62,27,500
10 5,62,27,500 8,43,413 11,02,500.00 19,45,913 5,51,25,000
11 5,51,25,000 8,26,875 11,02,500.00 19,29,375 5,40,22,500
12 5,40,22,500 8,10,338 11,02,500.00 19,12,838 5,29,20,000
13 5,29,20,000 7,93,800 11,02,500.00 18,96,300 5,18,17,500
14 5,18,17,500 7,77,263 11,02,500.00 18,79,763 5,07,15,000
15 5,07,15,000 7,60,725 11,02,500.00 18,63,225 4,96,12,500
16 4,96,12,500 7,44,188 11,02,500.00 18,46,688 4,85,10,000
17 4,85,10,000 7,27,650 11,02,500.00 18,30,150 4,74,07,500
18 4,74,07,500 7,11,113 11,02,500.00 18,13,613 4,63,05,000
19 4,63,05,000 6,94,575 11,02,500.00 17,97,075 4,52,02,500
20 4,52,02,500 6,78,038 11,02,500.00 17,80,538 4,41,00,000
21 4,41,00,000 6,61,500 11,02,500.00 17,64,000 4,29,97,500
22 4,29,97,500 6,44,963 11,02,500.00 17,47,463 4,18,95,000
23 4,18,95,000 6,28,425 11,02,500.00 17,30,925 4,07,92,500
24 4,07,92,500 6,11,888 11,02,500.00 17,14,388 3,96,90,000
25 3,96,90,000 5,95,350 11,02,500.00 16,97,850 3,85,87,500
26 3,85,87,500 5,78,813 11,02,500.00 16,81,313 3,74,85,000
27 3,74,85,000 5,62,275 11,02,500.00 16,64,775 3,63,82,500
28 3,63,82,500 5,45,738 11,02,500.00 16,48,238 3,52,80,000
29 3,52,80,000 5,29,200 11,02,500.00 16,31,700 3,41,77,500
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30 3,41,77,500 5,12,663 11,02,500.00 16,15,163 3,30,75,000
31 3,30,75,000 4,96,125 11,02,500.00 15,98,625 3,19,72,500
32 3,19,72,500 4,79,588 11,02,500.00 15,82,088 3,08,70,000
33 3,08,70,000 4,63,050 11,02,500.00 15,65,550 2,97,67,500
34 2,97,67,500 4,46,513 11,02,500.00 15,49,013 2,86,65,000
35 2,86,65,000 4,29,975 11,02,500.00 15,32,475 2,75,62,500
36 2,75,62,500 4,13,438 11,02,500.00 15,15,938 2,64,60,000
37 2,64,60,000 3,96,900 11,02,500.00 14,99,400 2,53,57,500
38 2,53,57,500 3,80,363 11,02,500.00 14,82,863 2,42,55,000
39 2,42,55,000 3,63,825 11,02,500.00 14,66,325 2,31,52,500
40 2,31,52,500 3,47,288 11,02,500.00 14,49,788 2,20,50,000
41 2,20,50,000 3,30,750 11,02,500.00 14,33,250 2,09,47,500
42 2,09,47,500 3,14,213 11,02,500.00 14,16,713 1,98,45,000
43 1,98,45,000 2,97,675 11,02,500.00 14,00,175 1,87,42,500
44 1,87,42,500 2,81,138 11,02,500.00 13,83,638 1,76,40,000
45 1,76,40,000 2,64,600 11,02,500.00 13,67,100 1,65,37,500
46 1,65,37,500 2,48,063 11,02,500.00 13,50,563 1,54,35,000
47 1,54,35,000 2,31,525 11,02,500.00 13,34,025 1,43,32,500
48 1,43,32,500 2,14,988 11,02,500.00 13,17,488 1,32,30,000
49 1,32,30,000 1,98,450 11,02,500.00 13,00,950 1,21,27,500
50 1,21,27,500 1,81,913 11,02,500.00 12,84,413 1,10,25,000
51 1,10,25,000 1,65,375 11,02,500.00 12,67,875 99,22,500
52 99,22,500 1,48,838 11,02,500.00 12,51,338 88,20,000
53 88,20,000 1,32,300 11,02,500.00 12,34,800 77,17,500
54 77,17,500 1,15,763 11,02,500.00 12,18,263 66,15,000
55 66,15,000 99,225 11,02,500.00 12,01,725 55,12,500
56 55,12,500 82,687 11,02,500.00 11,85,188 44,10,000
57 44,10,000 66,150 11,02,500.00 11,68,650 33,07,500
58 33,07,500 49,612 11,02,500.00 11,52,113 22,05,000
59 22,05,000 33,075 11,02,500.00 11,35,575 11,02,500
60 11,02,500 16,537 11,02,500.00 11,19,038 -0.00
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5.11 NET PRESENT VALUE
Total Cost of Project
9,45,00,000
Year 2012-13 2013-14 2014-15 2015-16 2016-17
PBIT 2,07,54,000 4,16,34,500 4,53,43,745 5,96,67,994 7,24,82,628
Interest @ 10% 1,08,15,525 84,34,125 62,51,175 36,71,325 12,89,925
PBT 99,38,475 3,32,00,375 3,90,92,570 5,59,96,669 7,11,92,703
Tax @ 30% 20,00,000 1,15,00,000 1,60,00,000 2,00,00,000 2,30,00,000
Profit After Tax 79,38,475 2,17,00,375 2,30,92,570 3,59,96,669 4,81,92,703
Add: Depreciation 48,50,000 41,77,500 75,67,875 58,29,994 68,28,865
Net Cash Accruals 1,27,88,475 2,58,77,875 3,06,60,445 4,18,26,663 5,50,21,567
PV FACTOR 0.8929 0.7972 0.7118 0.6355 0.5674
Present value of future cash flow
@ 12 % 1,14,18,281 2,06,29,683 2,18,23,499 2,65,81,600 3,12,20,714
Total Cash Inflow 11,16,73,779
Total Cash Outflow 9,45,00,000
Net Present Value 1,71,73,779
Interpretation
Here NPV is positive, which helps to take decision regarding to invest in this project will
be feasible or not.
Here NPV is getting positive, so that it can be proved that this project is feasible and viable
to invest money.
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5.12 PAY BACK PERIOD
Year Net Cash Accruals Cumulative cash flow
2012-13 1,27,88,475 1,27,88,475
2013-14 2,58,77,875 3,86,66,350
2014-15 3,06,60,445 6,93,26,795
2015-16 4,18,26,663 11,11,53,458
2016-17 5,50,21,567 16,61,75,025
Net Investment 9,45,00,000
Pay Back Period 3 Years 2 months and 22 days
Interpretation
PB indicates the period at the end of which investment will be received back. It worked out
on the basis of net cash flow.
In above table it shows that firm can received its investment back in 3 Years 2 months and
22 days, which indicates the more feasibility of investment opportunity.
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5.13 INTERNAL RATE OF RETURN (IRR)
Total Investment 9,45,00,000
Year Net Cash Accruals Discount factor
@ 10% Present value
2012-13 1,27,88,475.00 0.8496 1,08,65,314.36
2013-14 2,58,77,875.00 0.7219 1,86,79,948.95
2014-15 3,06,60,445.00 0.6133 1,88,03,949.03
2015-16 4,18,26,663.00 0.5211 2,17,94,522.87
2016-17 5,50,21,567.20 0.4427 2,43,58,505.68
Total Present Value 9,45,02,240.89
Internal Rate of Return 17.70
Interpretation
Internal rate of return (IRR) is the discount rate at which the net present value of an
investment becomes zero. In other words, IRR is the discount rate which equates the
present value of the future cash flows of an investment with the initial investment.
Here IRR is 17.70, which means that at this rate the present value of all total cash flows
will be zero.
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5.14 SENSITIVITY ANALYSIS
Situation: Sales Decreased by 10%
Projected Profit & Loss Account
Projected Profit & Loss Account
Particulars Amount
2012-13 2013-14 2014-15 2015-16 2016-17
Income (Annexure A)
11,28,27,600 14,66,53,200 17,79,35,400 20,62,42,200 23,75,19,000
Material Consumed
3,00,00,000 3,30,00,000 3,69,60,000 4,13,95,200 4,63,62,624
Operating Expense (Annexure B)
5,73,00,000 7,05,30,000 9,25,89,600 10,50,80,952 11,86,24,445
Gross Profit 2,55,27,600 4,31,23,200 4,83,85,800 5,97,66,048 7,25,31,931
Gross Profit In Percentage
22.63% 29.40% 27.19% 28.98% 30.54%
Administrative Exp
(Annexure C) 1,24,60,000 1,36,06,000 1,52,44,780 1,71,83,860 1,96,11,439
Depreciation (Annexure D)
48,50,000 41,77,500 75,67,875 58,29,994 68,28,865
Profit Before Interest And Tax
82,17,600 2,53,39,700 2,55,73,145 3,67,52,194 4,60,91,628
Interest
(Annexure E) 1,08,15,525 84,34,125 62,51,175 36,71,325 12,89,925
Profit Before Tax (PBT)
(25,97,925) 1,69,05,575 1,93,21,970 3,30,80,869 4,48,01,703
Provision For Tax - 56,00,000 64,00,000 1,10,00,000 1,49,00,000
Net Profit After Tax
(25,97,925) 1,13,05,575 1,29,21,970 2,20,80,869 2,99,01,703
Net Profit In Percentage
-2.30% 7.71% 7.26% 10.71% 12.59%
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Projected Balance Sheet
Projected Balance Sheet
Particulars Amount
2012-13 2013-14 2014-15 2015-16 2016-17
Liabilities
Own Capital 2,83,50,000 2,83,50,000 2,83,50,000 2,83,50,000 2,83,50,000
Reserve and surplus
(25,97,925) 87,07,650 2,16,29,620 4,37,10,489 7,36,12,192
Secured Loan
5,29,20,000 3,96,90,000 2,64,60,000 1,32,30,000 0
Total Liabilities
7,86,72,075 7,67,47,650 7,64,39,620 8,52,90,489 10,19,62,192
Assets
Fixed Assets
Land 5,00,00,000 7,00,00,000 7,00,00,000 10,25,00,000 10,25,00,000
Buildings 2,70,00,000 2,43,00,000 3,08,70,000 2,77,83,000 4,30,04,700
Furniture 72,00,000 64,80,000 1,03,32,000 92,98,800 83,68,920
Motor Car 42,50,000 36,12,500 64,70,625 55,00,031 46,75,027
Computer 2,00,000 80,000 12,32,000 4,92,800 1,97,120
Total Fixed Assets
8,86,50,000 10,44,72,500 11,89,04,625 14,55,74,631 15,87,45,767
Current Assets
Stock 4,00,000 5,00,000 5,50,000 5,80,000 6,00,000
Cash & Bank Balance
(96,27,925) (2,18,44,850) (3,58,15,005) (4,89,84,142) (4,15,83,575)
Total CA (92,27,925) (2,13,44,850) (3,52,65,005) (4,84,04,142) (4,09,83,575)
Current Liabilities
Sundry Creditors
7,50,000 7,80,000 8,00,000 8,80,000 9,00,000
Provision for Tax
- 56,00,000 64,00,000 1,10,00,000 1,49,00,000
Total CL 7,50,000 63,80,000 72,00,000 1,18,80,000 1,58,00,000
Total Assets 7,86,72,075 7,67,47,650 7,64,39,620 8,52,90,489 10,19,62,192
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Net Present Value
Total Cost of Project 9,45,00,000
Year 2012-13 2013-14 2014-15 2015-16 2016-17
PBIT 82,17,600 2,53,39,700 2,55,73,145 3,67,52,194 4,60,91,628
Interest 6,61,50,000 Rs. @ 10%
1,08,15,525 84,34,125 62,51,175 36,71,325 12,89,925
PBT (25,97,925) 1,69,05,575 1,93,21,970 3,30,80,869 4,48,01,703
Tax @ 30% 0 56,00,000 64,00,000 1,10,00,000 1,49,00,000
Profit After Tax
(25,97,925) 1,13,05,575 1,29,21,970 2,20,80,869 2,99,01,703
Add: Depreciatio
n 48,50,000 41,77,500 75,67,875 58,29,994 68,28,865
Net Cash Accruals
22,52,075 1,54,83,075 2,04,89,845 2,79,10,863 3,67,30,567
PV FACTOR 0.89 0.80 0.71 0.64 0.57
Present value of
future cash flow @ 12 %
20,10,781 1,23,43,013 1,45,84,267 1,77,37,858 2,08,41,910
Total Cash Inflow 6,75,17,829
Total Cash Outflow 9,45,00,000
Net Present Value (2,69,82,171)
Interpretation
Here if we decreased sales by 10% then also NPV is negative, which indicate more risk
and less profitability of the firm. By doing sensitivity analysis it is clearly seen that NPV
we get is negative, this project is not viable.
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Internal Rate of Return
Year Net Cash Accruals Discount facto
@ 10% Present value
2012-13 22,52,075.00 0.9780 22,02,518.34
2013-14 1,54,83,075.00 0.9565 1,48,09,165.42
2014-15 2,04,89,845.00 0.9354 1,91,66,760.81
2015-16 2,79,10,863.00 0.9148 2,55,34,067.28
2016-17 3,67,30,567.20 0.8947 3,28,63,290.92
Total Present Value 9,45,75,802.76
Internal Rate of Return 2.25
Interpretation
Internal rate of return (IRR) is the discount rate at which the net present value of an
investment becomes zero. In other words, IRR is the discount rate which equates the
present value of the future cash flows of an investment with the initial investment.
In sensitivity analysis, by decreasing sales by 10%, IRR is 17.70, which means that at this
rate the present value of all total cash flows will be zero.
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Payback Period
Year Net Cash Accruals Cumulative cash flow
2012-13 22,52,075 22,52,075
2013-14 1,54,83,075 1,77,35,150
2014-15 2,04,89,845 3,82,24,995
2015-16 2,79,10,863 6,61,35,858
2016-17 3,67,30,567 10,28,66,425
Net Investment 9,45,00,000
Pay Back Period 4 Years 3 months and 10 days
Interpretation
PB indicates the period at the end of which investment will be received back. It worked out
on the basis of net cash flow.
In above table, in sensitivity analysis, by decreasing sales by 10%, it shows that firm can
received its investment back in 4 Years 3 months and 10 days, which indicates the more
feasibility of investment opportunity.
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CONCLUSION
According to overall analysis, it is clear that the firm net present value is positive and its
investment also recover its investment in shorter period of time, which indicate low risk
and high profitability of the firm for the future. So it is advisable that the firm can go with
this project.
One more thing which needs attention is that, on one side situation if sales decreased by
10% still the firm net present value is positive but decreased. The firm also recover its
investment within shorter period of time, which indicates low risk and high profitability of
the firm for the future. So it is advisable that the firm can go with this project.
There is always better to calculated risk rather than investing abruptly. And this kind of
analysis will provide one with at least basic idea about risk and return characteristics of
investment, thus, according to all over analysis of project investment in hotel will be
beneficial for an investor.
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SUGGESTIONS
This entire project is based on projected data rather than actual certain data. So some time
it may he happened that the project may not be feasible in real manner. Since project is
based on the projected estimated data, so sometime it may also happened that it is difficult
to implement in real business life and practical life.
The above all calculations do not guaranteed the profitable and successfulness of the
project because rapid changes take place in today‘s financial market condition and market
trend. One can applied more financial analysis tool in order to judge the efficiency and
profitability of the firm in context of the present financial market situation and present
market trend.
Hence while preparing and analysis of the project one shall keep in mind the future
uncertainty related with cosy of the project, expected return from the project, future
competitions, expected demand in future and legal provisions; time element which refers
that longer demand in future and legal provisions; time element which refers that longer
the time element the greater would be uncertainty.
So keep this factor in mind so as to more efforts not to eradicate it totally but definite to
minimize.
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BIBLIOGRAPHY
Books:
Vasant Desai, ―Entrepreneurship Development‖, 8th
Edition, Himalaya Publishing
House Pvt. Ltd, New Delhi. Page no. 26-48, 136-147.
S. Sunil Kumar. ―Entrepreneurship Development‖, 2nd
Edition, New Age
International (P) Limited Publication, New Delhi. Page no. 42-62,69-82, 215-230.
Website:
www.santanderbusinessguide.com/bizguides/full/hotel.htm
http://www.readyratios.com/reference
http://www.marketresearch.com/Cygnus-Business-Consulting-and-Research-
v3438/Indian-Hotel-6771690